oversight

The City of Augusta Georgia Needs to Improve Controls Over its Community Development Block Grant Facade Program

Published by the Department of Housing and Urban Development, Office of Inspector General on 2009-02-10.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                             Issue Date
                                                                February 10, 2009
                                                             Audit Report Number
                                                                   2009-AT-1002




TO:         Mary D. Presley, Director, HUD Atlanta Office of Community Planning and
              Development, 4AD



FROM:       James D. McKay, Regional Inspector General for Audit, 4AGA

SUBJECT:    The City of Augusta, Georgia Needs to Improve Controls Over its Community
              Development Block Grant Façade Program


                                HIGHLIGHTS

 What We Audited and Why

           We reviewed the City of Augusta’s (City) Community Development Block Grant
           (CDBG) Façade Rehabilitation Grant (façade) program due to concerns of
           mismanagement and abuse regarding the City’s program. Our objectives were to
           determine whether the City’s façade program complied with federal requirements
           and whether program activities met the national objectives of the CDBG program.

 What We Found


           The City did not have adequate controls over its financial management of the
           façade program. A review of the City’s program drawdown reports showed
           payments totaling $180,817 that were not recorded in the general ledgers. This
           condition occurred because the City did not ensure that all transactions were
           recorded in the general ledgers. As a result, $180,817 in program funds was
           unsupported. In addition, HUD could not be assured that the remaining $270,175
           in program funds would be accurately recorded or expended in a timely manner.
           The City did not adequately monitor its façade program. It did not verify the
           program match requirements or complete façade grants in a timely manner. In
           addition, it did not ensure that program files were complete and contained all
           information required by its policies and procedures. This condition occurred
           because City management and staff did not follow and enforce program
           requirements. As a result of not adequately monitoring its façade program, the
           City could not ensure that the owners followed program requirements.


What We Recommend


           We recommend that the Director of HUD’s Atlanta Office of Community
           Planning and Development require the City to (1) properly support or repay the
           façade program $180,817 from non-federal funds and establish controls to ensure
           that all program transactions are accurately recorded in the general ledgers and (2)
           establish controls to ensure that the remaining $270,175 in program funds is used
           for its intended purpose or reprogrammed to fund other eligible CDBG activities.
           We also recommend that the Director ensure that the City establishes controls to
           ensure that staff follows written policies and procedures for administering the
           façade program.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.


Auditee’s Response


           We provided a copy of the draft report to the City on January 6, 2009, and held an
           exit conference on January 13, 2009. The City provided written comments on
           January 27, 2009. The City generally agreed with the findings and
           recommendations.

           The complete text of the auditee’s response, along with our evaluation of that
           response, can be found in appendix B of this report. The City also provided
           attachments with its response that are available for review upon request.




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                            TABLE OF CONTENTS

Background and Objectives                                                     4

Results of Audit
      Finding 1: The City Did Not Have Adequate Controls over Its Financial   5
                 Management of the Façade Program
      Finding 2: The City Did Not Adequately Monitor Its Façade Program       8

Scope and Methodology                                                         11

Internal Controls                                                             12

Appendixes
   A. Schedule of Questioned Costs and Funds to Be Put to Better Use          13
   B. Auditee Comments and OIG’s Evaluation                                   14




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                     BACKGROUND AND OBJECTIVES

Title I of the Housing and Community Development Act of 1974 (Public Law 93-383)
established the Community Development Block Grant (CDBG) program. The Façade
Rehabilitation Grant (façade) program is available for grantees to use under the CDBG program.
All CDBG activities must meet one of the following national objectives:

       (1) Benefit low- and moderate-income persons,
       (2) Aid in the prevention or elimination of slums and blight, or
       (3) Meet certain community development needs having a particular urgency.


The City of Augusta (City) uses the façade program to revitalize historic commercial structures
to help stimulate economic growth in the Central Business District, Central City Revitalization
District, and neighborhoods that are severely blighted and in a state of disrepair. The City’s
façade program was established in 1980. Its mission is to create positive change by promoting
self-sufficiency through partnership in economic development, quality housing, and
neighborhood reinvestment.

The Augusta Housing and Community Development department administers the funding on
behalf of the City. The U.S. Department of Housing and Urban Development (HUD) provided
the City’s façade program $564,615 for program years 2000 through 2006. Its allocation for the
program is approximately $100,000 annually, depending on funding.

Our audit objectives were to determine whether the City’s façade program complied with federal
requirements and whether program activities met the national objectives of the CDBG program.




                                               4
                                RESULTS OF AUDIT

Finding 1: The City Did Not Have Adequate Controls over Its Financial
Management of the Façade Program
The City did not have adequate controls over its financial management of the façade program. A
review of the City’s program drawdown reports showed payments totaling $180,817 that were
not recorded in the general ledgers. This condition occurred because the City did not ensure that
all transactions were recorded in the general ledgers. In addition, the City did not ensure that
obligated program funds were expended in a timely manner. As a result, $180,817 in program
funds was unsupported, and HUD could not be assured that the remaining $270,175 in program
funds would be accurately recorded and expended in a timely manner.




 Unrecorded Drawdown
 Transactions


              The City’s façade program received $564,615 for program years 2000 through
              2006. As of October 15, 2008, the City had drawn down $294,440 for façade
              grants. It had 17 active façade grants, approximately $30,000 each, during the
              period January 1, 2005, through July 31, 2008. The City obligates funds to
              various façade grants through the HUD Integrated Disbursement Information
              System (IDIS). Once the funds are obligated, the City draws down the obligated
              funds and then provides payments to contractors that work on the façade grant.

              Regulations at 24 CFR [Code of Federal Regulations] 570.506 state that grantees
              shall maintain financial records, including source documentation, to support how
              the CDBG funds provided to such entities are expended.

              The City did not ensure that all transactions were accurately recorded in the
              general job ledgers. A review of the general job ledgers and IDIS drawdown
              reports for the 17 façade grants showed that 10 grants had payments totaling
              $180,817 that were not recorded in the general job ledgers. The City was not able
              to provide the general job ledgers showing the entries for these 2005 payments.
              The former financial officer stated that when she arrived in 2005, many of the
              payments were incorrectly posted because the person who held the position
              previously did not know how to record transactions correctly. She stated that she
              had attempted to correct the mistake but was unable to account for all of the 2005
              façade payments. Since 2005, the City had improved its recording of façade
              payment transactions in its general job ledgers.



                                                5
  Façade Program Funds Not
  Expended in a Timely Manner


             The City also did not spend the funding obligated for the façade program in a
             timely manner. The City had $270,175 in program funds from 2000 to 2006 that
             was obligated but not expended on the program. More than half of the $270,175
             was obligated more than four years earlier. The following table shows the funds
             that were obligated and expended under the façade program.

                     Program         Amount             Amount
                       year           funded           expended           Balance
                       2000          $ 81,600          $ 59,600           $ 22,000
                       2001          $ 50,000          $ 20,147           $ 29,853
                       2002          $ 50,000          $ 50,000
                       2003          $100,000          $ 64,424           $ 35,576
                       2004          $175,020          $ 32,800           $142,220
                      20051          $ 7,995           $ 7,995
                       2006          $100,000          $ 59,474           $ 40,526
                      Totals         $564,615          $294,440           $270,175

                     *No funding was allocated for program years 2007 and 2008.
                     1
                       Funded with recaptured Urban Development Action Grant funds.

             HUD officials stated that although there are no formal deadlines for expending
             obligated funds, the funds should be expended within a reasonable period, usually
             within four to five years. The City could not explain why it was not able to track
             the funds obligated to ensure that they were expended within a reasonable period.
             It was not aware that the façade program funds had not been expended. By not
             using the obligated funds on a timely basis, the City did not demonstrate the need
             for the funds and did not use the funds for their intended purpose.


Conclusion


             Overall, the City needs to improve its controls over the financial management of
             the façade program. The City could not provide support to show that $180,817 in
             program funds was recorded in the general job ledgers. In addition, it did not
             ensure that obligated program funds were expended in a timely manner. As a
             result, HUD could not be assured that the remaining $270,175 in program funds
             would be accurately recorded and expended in a timely manner.




                                                6
Recommendations



          We recommend that the Director of HUD’s Atlanta Office of Community
          Planning and Development

          1A. Require the City to repay the program from non-federal funds any portion of
              the $180,817 determined to be unsupported.

          1B. Require the City to revise its policies and procedures to include recording
              CDBG payments, identifying documentation to be maintained, and
              establishing controls to ensure that all transactions are accurately recorded.

          1C. Require the City to establish controls to ensure that the remaining $270,175
              in façade program funds is expended in a timely manner for its intended
              purpose or reprogram the funds for other eligible CDBG activities.




                                            7
Finding 2: The City Did Not Adequately Monitor Its Façade Program
The City did not adequately monitor its façade program. It did not verify program match
requirements in a timely manner. In addition, it did not ensure that program files were complete
and contained all information required by its policies and procedures. This condition occurred
because City management and staff did not follow and enforce program requirements. As a
result of not adequately monitoring its façade program, the City could not ensure that the owners
followed program requirements.




 Façade Program Requirements



               The City is responsible for administering and monitoring the façade program. Its
               policies and procedures state that it is responsible for ensuring that façade grant
               activities meet the national objectives of the CDBG program, as well as ensuring
               that owners meet the match requirements of the façade grant.

               The City awarded façade grants that contained match requirements based on the
               location of the property. If the property was located in the historical Central
               Business District of Augusta, the owner was required to match the amount spent
               by the City on the exterior façade with interior improvements that would bring the
               property up to building, fire, and life safety codes. If the property was located in
               the Central City Revitalization or Enterprise Zone District, the owner was
               required to employ one full-time low/moderate-income person within 90 days
               after the final payment was made on the project and maintain the position for five
               years. The City’s internal guidance states that all match requirements must be
               verified within 90 days of the grant’s final payment.

               Regulations at 24 CFR 85.40 state that grantees must monitor grant and subgrant
               supported activities to assure that performance goals are being achieved and must
               cover each program, function, or activity.

 Verification of Match
 Requirements Not Completed
 in a Timely Manner


               The City did not verify match requirements in a timely manner for three of the
               seven façade grants reviewed. Two façade grants that contained funding match
               requirements had final payment dates of September 15, 2005, and September 16,
               2005, respectively. However, the match requirement was not verified until

                                                8
             October 10, 2007, for both projects. One additional façade grant contained job
             creation requirements and had a final payment date of July 2, 2008. As of
             October 31, 2008, the façade grant had not been verified to determine whether the
             job creation requirement was met.


 Grants Not Completed in a
 Timely Manner

             The seven files reviewed met the national objectives of the CDBG program.
             However, the City did not complete the grants in a timely manner. Although
             there is no formal guidance in this regard, City officials stated that their goal was
             to complete façade grants within one year. Three of the seven files reviewed took
             more than 18 months to process from the submission of the application to
             construction completion. One of the grants took more than four years to
             complete. Another grant was applied for in May 2007; however, it was only in
             the design phase, and no construction had been initiated. By not completing the
             projects on a timely basis, the City did not fully benefit from the program’s
             intended purpose.


 Incomplete Program Files


             The City did not ensure that façade program files were complete and contained all
             information required by their policies and procedures. Each of the seven files
             reviewed contained different information. The City’s policies and procedures for
             administering the façade program include a checklist listing all of the steps to be
             taken and documents to be maintained in the files. None of the files contained all
             of the documentation listed on the checklist. We identified instances in which
             inspection reports, building permits, bid tabulation sheets, and other pertinent
             information related to the project administration were not contained in the files.
             This condition occurred because the City did not follow its policies and
             procedures by ensuring that all files were complete. As a result, it could not be
             assured that the grants were administered in accordance with its policies and
             procedures.


Conclusion



             The City needs to improve its monitoring of the façade program. It did not verify
             match requirements or complete grants in a timely manner. In addition, it did not
             ensure that façade program files were complete and contained the required
             documentation. The City acknowledged the delay in completing façade grants

                                               9
          and stated that it was establishing procedures to correct these deficiencies. As a
          result of these deficiencies, the City did not ensure that the owners followed the
          façade program requirements.


Recommendations


          We recommend that the Director of HUD’s Atlanta Office of Community
          Planning and Development

          2A. Require the City to establish controls to ensure that it follows its policies and
              procedures to ensure that façade grants are adequately monitored and
              completed in a timely manner.

          2B. Require the City to establish controls to ensure that it follows its policies and
              procedures to ensure that files are complete and contain all pertinent
              information according to the checklist in its policies and procedures manual.




                                           10
                        SCOPE AND METHODOLOGY

To accomplish our objectives, we

       Researched HUD handbooks, the Code of Federal Regulations, and other requirements
       and directives that govern the City’s CDBG program;

       Obtained and reviewed the City’s Integrated Disbursement and Information System
       drawdown reports and general ledgers;

       Reviewed façade project files and independent audit reports;

       Reviewed the City’s consolidated annual performance and evaluation reports for its
       CDBG program;

       Reviewed the City’s policies and procedures used to administer its façade program
       activities; and

       Interviewed officials of the Atlanta HUD Office of Community Planning and
       Development and the City’s staff.

HUD provided the City’s façade program $564,615 for program years 2000 through 2006. As of
October 15, 2008, $294,440 had been drawn down for the façade grants. The City had 17 active
façade grants, approximately $30,000 each, during the period January 1, 2005, through July 31,
2008. We selected seven files and reviewed the project files, along with inspecting the façade
work at the properties, for compliance with federal and auditee regulations. Four of the seven
files were for properties that were specifically identified with potential program deficiencies.
We also reviewed the process used to award the façade grants to ensure that the recipients met
the selection criteria for the grants.

Our review generally covered the period January 1, 2005, through July 31, 2008. We performed
our review from September through November 2008 at the offices of the City’s Housing and
Community Development department located in Augusta, Georgia.

We performed our review in accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain sufficient, appropriate
evidence to provide a reasonable basis for our findings and conclusion based on our audit
objectives. We believe that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




                                              11
                              INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following controls are achieved:

       Program operations,
       Relevance and reliability of information,
       Compliance with applicable laws and regulations, and
       Safeguarding of assets and resources.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. They include the processes and procedures for planning,
organizing, directing, and controlling program operations as well as the systems for measuring,
reporting, and monitoring program performance.



 Relevant Internal Controls
              We determined that the following internal controls were relevant to our audit
              objectives:

                      Policies and procedures that management has implemented to reasonably
                      ensure that resource uses are consistent with laws and regulations.

                      Policies and procedures that management has implemented to reasonably
                      ensure that resources are safeguarded against waste, loss, and misuse.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.


 Significant Weaknesses


              Based on our review, we believe that the following items are significant weaknesses:

                      The City did not have adequate controls over its financial management of the
                      façade program (see finding 1).

                      The City did not adequately monitor its façade program (see finding 2).


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                                   APPENDIXES

Appendix A

              SCHEDULE OF QUESTIONED COSTS
             AND FUNDS TO BE PUT TO BETTER USE

               Recommendation         Unsupported 1/        Funds to be put to
                      number                                     better use 2/
                      1A                    $180,817
                      1C                                            $270,175


1/   Unsupported costs are those costs charged to a HUD-financed or HUD-insured program
     or activity when we cannot determine eligibility at the time of the audit. Unsupported
     costs require a decision by HUD program officials. This decision, in addition to
     obtaining supporting documentation, might involve a legal interpretation or clarification
     of departmental policies and procedures.

2/   Recommendations that funds be put to better use are estimates of amounts that could be
     used more efficiently if an Office of Inspector General (OIG) recommendation is
     implemented. These amounts include reductions in outlays, deobligation of funds,
     withdrawal of interest subsidy costs not incurred by implementing recommended
     improvements, avoidance of unnecessary expenditures noted in preaward reviews, and
     any other savings that are specifically identified. For recommendation 1C, the $270,175
     represents funds that could be used to complete additional façade grants or be
     reprogrammed for other CDBG activities.




                                             13
Appendix B

        AUDITEE COMMENTS AND OIG’S EVALUATION


Ref to OIG Evaluation   Auditee Comments




Comment 1




                         14
Comment 1

Comment 1




            15
Comment 1




Comment 1




            16
Comment 2




Comment 2




            17
Comment 2




            18
19
Comment 2




            20
21
                         OIG Evaluation of Auditee Comments

Comment 1   The City agreed with the assessment of the façade program financial management
            and the slow expenditures of the façade funds. However, the City took exception
            to the lack of supporting documentation for $180,817. The City stated that the
            former financial officer attempted but was unable to account for all individual
            2005 facade payments. The facade payments were "lumped together" in summary
            form and recorded as CDBG expenditures in the general ledger and detailed
            individual facade transactions were not recognizable for certain 2005 payments.
            The City stated that they located all of the supporting documentation for the
            $180,817, which includes invoices, requests for payments, and copies of checks
            issued for the unsupported facade payments.

            We reviewed the information provided by the City during the audit and
            determined payments totaling $180,817 were not recorded in the general ledgers.
            The City did not provide documentation to support that the facade expenses, in
            lump sum form or individually, were recorded in the general ledgers. Although
            the City contends the facade payments were for eligible activities, the $180,817 in
            facade payments remains unsupported because the City cannot identify the facade
            payments in its general ledgers.


Comment 2   The City's agreement with the recommendation indicates its willingness to make
            necessary improvements. The procedures were provided after we completed our
            site work. Thus, we did not verify the information the City submitted. The City
            should provide the established procedures to HUD for review.




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